Gov't maps out steps to enable smaller firms to transfer costs to bigger companies

The Japanese government on Monday unveiled a package of steps aimed at enabling small and midsize companies to pass on costs from higher raw material prices and pay hikes properly to bigger firms, as Prime Minister Fumio Kishida pushes for wage growth.

The government aims to strengthen monitoring to prevent big firms from taking advantage of their relative superiority and setting unfairly low prices when they do business with subcontractors. Such a practice, which goes against the country's law, often squeezes profitability at small and midsize companies.

Kishida sees wage growth as an integral part of his drive to create a new form of capitalism that aims to achieve economic growth and wealth redistribution. The first three months of every year will be a designated period to intensify efforts to tackle issues faced by small and midsize firms as annual wage talks between management and labor unions go into full swing.

"We will set the stage for small and midsize companies, which support employment in local economies, to be able to properly pass on costs to their prices and make profits," Kishida said during a meeting with business leaders.

Representatives from 27 organizations attended the meeting, including the powerful business lobby Japan Business Federation and the Japan Chamber of Commerce and Industry.

The package envisages doubling the number of government investigators in charge of checking the reality facing subcontractors, to 248 in the next business year starting in April from the current 120. They will conduct interviews with over 10,000 small and midsize companies a year.

The Japan Fair Trade Commission and the government agency for small and midsize companies plan to compile a report by June on unfair practices. To this end, a new website will be set up, enabling subcontractors to anonymously submit information on bigger companies whose practices are seen as illegal.

Based on the results, three sectors in which big companies appear reluctant to allow smaller firms to transfer higher costs will be chosen every year for intensive on-site inspections.

To avoid bigger firms from exploiting startups and marketing products based on their business secrets, the government will conduct a survey covering around 5,000 firms.

Many small and midsize firms are still facing difficult business conditions as their recovery from the COVID-19 fallout has lagged. Surging energy and raw material costs have become a headache for companies as they need to carefully decide to what extent they will raise prices to transfer such costs.